The Department of Labor announced proposed rule changes to make it harder for American workers to operate as independent contractors under the Fair Labor Standards Act (FLSA).
The DOL claims workers are grossly misclassified as independent contractors by employers and should therefore be reclassified as employees. They assert worker misclassification is a “serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.” But in reality, the DOL rule changes will restrict worker freedom and choice because they seek to correct a non-existent problem of worker classification. Existing laws already identify and address misclassification in the workplace. If the DOL proceeds here, they’ll erase independent workers by rewriting them out of existence.
In order to address alleged misclassification, the rule proposes rewriting the Fair Labor Standards Act to adopt an ABC test—similar to that of California’s Assembly Bill 5—to determine a worker’s status.
Since becoming California law in 2020, AB5 has resulted in countless workers being displaced from their livelihoods and losing sizable amounts of their incomes.
The California law stipulates a worker is a default employee—not an independent contractor—unless they fulfill all three prongs of the ABC test below:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The final rule was published on Thursday, October 13th, and comments on the proposed rule will be accepted within 45 days. This comes after a federal court reprimanded the Biden administration for violating the Administrative Procedure Act of 1946 after offering a 19-day comment period to their rewrite of the Trump-era January 2021 IC rule.
The proposed DOL rule borrows similar language with its own ABC test (bolded for emphasis):
The Department is further proposing to return the consideration of investment to a standalone factor, provide additional analysis of the control factor (including detailed discussions of how scheduling, remote supervision, price-setting, and the ability to work for others should be considered), (A Prong) and return to the longstanding interpretation of the integral factor, which considers whether the work is integral to the employer’s business (B Prong). The Department believes this proposed rule is more grounded in the ultimate inquiry of whether a worker is in business for themself or is economically dependent on the employer for work. (C Prong).
Like other Biden administration policies, they’re not overly concerned with the implementation of this proposed rule. In fact, the document explicitly supports codifying AB5 nationally but concedes the Supreme Court would strike it down because they ruled the economic reality test falls under the purview of the FLSA:
Though an ABC test would be clear and simple to use for regulated entities who use (or wish to use) independent contractors, it would also be more restrictive of independent contracting arrangements compared to the proposed rule. In any event, the Department believes it is legally constrained from adopting an ABC test because the Supreme Court has held that the economic reality test is the applicable standard for determining workers’ classification under the FLSA as an employee or independent contractor.
In response, Education and Labor Committee Republican Leader Virginia Foxx (R-NC) and Workforce Protections Subcommittee Republican Leader Fred Keller (R-PA) issued a strong rebuke of the worker rule and vowed to fight against it:
Independent contracting is a popular work model, but the Biden administration would prefer to saddle workers and job creators with red tape instead of encouraging flexibility. Americans want the freedom and flexibility that comes with independent contracting, and depriving them of such liberties is a kick in the teeth.
This isn’t the first time the Department of Labor has resorted to erasing freelancer livelihoods via regulatory fiat.
Former DOL Wage and Hour Division Administrator, David Weil—who failed to get his old job back—issued an Administrator’s Interpretation (AI) in 2015 stating more workers should be classified as employees. It claimed, “[A]pplying the economic realities test in view of the expansive definition of ‘employ’ under the Act, most workers are employees under the FLSA.”
Unlike the Biden Labor Department, most Americans—including gig workers—believe worker classification laws don’t need to be reformed to make workers default employees who may be easier to unionize. Rideshare workers, for instance, are perceived to be independent contractors by most Americans and overwhelmingly self-identify as ICs on their own accord, as well.
Pew Research Center’s “The State of the Gig Worker in 2021” survey confirmed these findings, writing, “…a majority (62%) [of Americans] say the most appropriate way to describe ride-hailing drivers is as independent contractors providing a service on behalf of the apps or websites.”
And it’s not just the consumers: “Gig platform workers’ self-perceptions follow a similar pattern – 65% see themselves as independent contractors, while 28% view themselves as employees.”
Americans are increasingly trending freelance. Thirty-six percent of the workforce—or 59 million workers—partake in some form of freelancers. An estimated 20 million of these freelancers work full-time as independent contractors.
The Biden administration shouldn’t make rules that are unpopular and stifle worker freedom.